One of the more popular books in Washington these days is an award-winning tome in which economists Carmen Reinhart and Kenneth Rogoff conclude that financial crises like the one in 2008 are followed by economic downturns that are deeper and last longer than typical recessions. This Time is Different: Eight Centuries of Financial Folly is such a hit with lawmakers and the think-tank crowd that you can simply refer to its authors and their findings simply as “Reinhart-Rogoff,” no explanation needed.
And yet Harvard University's Lawrence H. Summers, perhaps the most impressive economist of his generation, doesn't understand the hoopla.
“Rogoff and Reinhart's observation that recessions have historically lasted a long time is like the observation that could have been made in 1955 that Europe never stopped having wars,” he says in an interview.
The comment is a glimpse of what his opponents are in for on Monday when Prof. Summers, the son of two economics professors, will be in Toronto to rebut the notion that North America is doomed to a decade of economic stagnation, as part of the 2011 Munk Debate.
With unemployment still high two years after the recession ended, there is a growing unease that the world's largest economy is trapped in a vicious cycle in which depressed consumers refuse to spend, banks refuse to lend and businesses refuse to invest. The malaise is even more acute in Europe, and this week the head of the International Monetary Fund said that, “if we do not act, and act together, we could enter a downward spiral of uncertainty, financial instability and a collapse in global demand.”
“Ultimately,” Christine Lagarde added, “we could face a lost decade of low growth and high unemployment.”
Prof. Summers is far less fatalistic. “Past need not be prologue,” he says, “especially if people are prepared to learn from it.” His rebuke of Reinhart-Rogoff is the kind of remark for which he is famous, and infamous. A tenured professor by the age of 28, he is renowned for a biting intellect and supreme self-confidence he uses to challenge popular wisdom.
Many people just wish he would launch his attacks a little more diplomatically. Prof. Summers, who until a year ago was U.S. President Barack Obama's top economic adviser, may not have intended to sound so dismissive of such a significant work of scholarship, especially since Prof. Rogoff and he work in the same department at Harvard.
Then again, maybe he did. It's the central dilemma in any attempt to evaluate a man whose career arc bears comparison to that of former secretary of state Henry Kissinger, suggesting that he could be on his way to becoming the most influential American economist yet.
“He is the biggest wielder of power of anyone in our profession,” says Robert Johnson, executive director of the Institute for New Economic Thinking, a think tank started by legendary hedge-fund manager George Soros.
“In many ways, as Kissinger is to foreign policy, Larry Summers is to economics.”
When he was 38, Prof. Summers (who turns 57 this month) won the John Bates Clark Medal, awarded to an American economist under 40 who has made “a significant contribution to economic thought and knowledge.” Eleven recipients have gone on to receive Nobel Prizes, including two of his uncles – as well as Paul Krugman, the Princeton University professor and New York Times columnist who will be Prof. Summers's main opponent in Monday's debate.
Today, they compete for the spotlight, but in 1982, both men found themselves working for then president Ronald Reagan's Council of Economic Advisers. Prof. Krugman left Washington with a distaste of bureaucracy and the process of policy-making, but the young Larry Summers took a liking to the influence business.
He returned to Harvard the next year to join the economics department, and is widely reported to have been a popular teacher. But in 1991, he moved to the World Bank as its chief economist, won the John Bates Clark Medal in 1993 and the following year joined the Treasury Department as undersecretary for international affairs.
A key member of Bill Clinton's economics team, he rose to treasury secretary for the final year of the president's second term in office. So his return to Washington under Mr. Obama caught many off guard. He was seen to be aligned with Hillary Clinton, but as the 2008 presidential campaign drew near, he found his way into the future president's circle of advisers, and was persuaded to trade Harvard for the White House. “It may be corny, but I believe if the president of the United States asks you to use skills you've developed to help your country at a critical moment, you say yes,” Prof. Summers says. “Economics is a discipline that has its roots in the effort to apply scientific methods to make lives better for people. There are many ways as an economist to contribute. I have felt that being in the crucible where public policies are being made is one important way.”
This belief in the potential of government to effect positive change explains his dislike for Reinhart-Rogoff, which is interpreted by many Republicans on Capitol Hill as backing for their opposition to further fiscal stimulus. “It's the central irony of financial crises that they are caused by too much confidence, too much borrowing and lending, and too much spending – and they are only resolved with more confidence, more borrowing and lending and more spending,” he says. “We need to find ways to get the flow of credit going again.”
Unfortunately, any assessment of the time Prof. Summers spent in Washington is inevitably pulled into the muck.
Starting with his stint at the World Bank, when he approved a memo that made the case for having poorer countries become dumping grounds for toxic waste, his ascent has left a vapour trail of controversy and vitriol.
The “toxic waste” memo was apparently an attempt to stimulate debate, but it stuck with Al Gore, who was reportedly so upset that later as vice-president he blocked Prof. Summers from gaining a higher post in the Clinton administration.
At the Treasury, Prof. Summers was the driving force behind the successful U.S.-led efforts to fight off a wave of international currency crises in the 1990s, and he was a prominent member of the economic team that produced budget surpluses and unemployment rates around 4 per cent.
Yet he struggled to grasp that Washington wasn't Cambridge, where young scholars in Harvard's economics department would have it out over pizza and beer. The policy process is tolerant of some yelling and screaming, but feelings can be hurt and people talk. Eventually, that talk finds its way into the press.
After the Clinton presidency, he returned to Harvard, not as an instructor, but as the university's president – recognition of his rising prominence. But an appointment that typically lasts for decades ended for him after just five years. He alienated humanities professors and then, in a 2005 speech, appeared to suggest that women lack men's “intrinsic aptitude” for science. Harvard faculty members held a vote of non-confidence in their leader; he lost and resigned.
Still, the denigration of his character over the years may be exaggerated. Phillip Swagel, now a professor at the University of Maryland, was a chief economist at the Treasury and says he was impressed by how highly regarded Prof. Summers was.
And former prime minister Paul Martin says, “I don't buy any of that stuff,” when asked about the all the reports of Prof. Summers's inappropriate behaviour. The two got to know each other when they were treasurers of the world's two biggest trading partners. “He's smart – and you better know your stuff. But if you know your stuff, you can make good progress.”
Still, Prof. Summers clearly is sensitive to attacks on his personality. He refuses to discuss his depiction in Confidence Men: Wall Street, Washington and the Education of a President, the fly-on-the-wall account by journalist Ron Suskind of Mr. Obama's economics team leading up to last year's midterm elections.
Prof. Summers comes off as a controlling, even manipulative, force that intimidated almost everyone else in the White House and gave the President bad advice. But, as is often the case with such books, the narrative is driven by the author's most co-operative sources, who tend to come off looking good, while their enemies are painted in darker hues.
“The hearsay attributed to me to me is a combination of fiction, distortion and words taken out of context,” Prof. Summers told The Washington Post in an e-mail in September.
Steven Rattner, the Wall Street investor brought in by Mr. Obama to lead the bailout of General Motors and Chrysler, called the book a “drive-by shooting.” Many officials quoted have questioned its accuracy, as have reviews in publications as varied as The Economist and The New Republic.
It may not be in Prof. Summers to avoid making enemies.
“There was a part of Larry that was kind of smart and impatient,” says Robert Johnson of the Institute for New Economic Thinking, who has known Prof. Summers since 1983. “Washington is rough and tumble, but Larry trampled some people.”
Which may make what he has achieved that much more remarkable. Many have tried to pull him down, yet he is still deploying his impressive intellect to influence the course of events.
“I write columns. I'm working on book,” he says. “I speak and meet with people who are influential in both the private and public sectors all over the world very frequently.”
That sounds like Henry Kissinger talking.
Kevin Carmichael is a member of The Globe and Mail's Washington bureau.